The country’s current account deficit (CAD) widened almost double to (negative) $3.557 billion in Jul-Sept 2017-18 compared to a deficit of $1.637 billion in the same period last year, the data released by the State Bank of Pakistan (SBP) said here on Friday.
“The balance of payment figures rang an alarming bell for the economists as the deficit touched $956 million in September compared to $550 million in August 2017,” an analyst said. The current A/C deficit is widening only because of rising country’s imports bills and lower inflows of foreign direct investment (FDI).” The CAD widened almost double in last three months.
Despite all week indicators, the SBP figures show that the country’s Gross Domestic Product (GDP) surged by 10.96 per cent to $85.160 billion in last three months compared to $76.057 billion in same period last fiscal year. According to the SBP’s projection, full year GDP would remain around 6 per cent in 2017-18.
Despite rising CAD, the foreign exchange (FX) reserves of the State Bank have been under pressure and slightly improved in October 2017 to $14.157 billion, which covers only 3-months of imports bills. In October, the SBP received an amount of $370 million but it did not mention where such amount received.
The analyst forecasts the CAD during 2017-18 to be in the range of $16.0-16.5 billion (5.0 per cent-5.5 per cent of GDP), up from $4.9 billion in 2015-16 and $12.1 billion in 2016-17.
The sources in State Bank and senior economists are of the view that the government would likely arrange this funding through borrowing. During the outgoing year 2016-17, the government borrowed around $8.5 billion (public and private debt) to fund the country’s external gap.
The next year – 2018-19 will be the election year and new government will need to take strict measures to curtail the trade balance otherwise there will be no option but to seek IMF funding, the analyst said. Such measures will include Rupee devaluation, hike interest rates, duties on non-essential imports, incentives for exporters etc, he added. The import bills had touched $7.220 billion in past three months which are almost above the double of the local export’s inflows, the SBP’s data said.
The central bank, from March this year, has imposed 100 per cent cash margin condition on the import of all luxurious items and imported vehicles. This decision of the SBP supposed to control the local import’s bill, the analyst claimed.
Similarly, a week ago — the federal government through FBR issued a list of 731 items to impose 30-50 per cent regulatory duty on import of goods, which will halt the imports of luxurious goods. The decision of the federal government is linked with the approval of the parliament and the trade bodies have already rejected the government decision to increase regulatory.
The State Bank is persistently facing payment pressure of international donor agencies including the International Monetary Fund (IMF). The central bank has so far maintained exchange rates in the interbank market despite pressure on dollar. Now it is being traded in the interbank market at Rs 105.40 today compared with $104.83 in June 2016.
The country’s exports surged by 10.84 per cent to $5.172 billion during first quarter (July-Sept) 2017-18 compared to $4.666 billion in the same period last year, however it declined by 10.24 per cent compared to August 2017, as the country exported goods worth $1.675 billion in September 2017.
The imports of the country increased by 22.19 per cent to $14.260 billion in July-Sept 2017-18 compared to $11.670 billion in the same period last year, however it enhanced by 9.67 per cent compared to August 2017.
Workers’ remittances in September 2017 declined by 34 per cent MoM/20 per cent YoY to $1.3 billion, where major dent was witnessed in remittances from Middle East countries. During first quarter 2017-18, workers’ remittances have managed to meagerly grow by 1 per cent YoY $4.8 billion.
